Competition in a Free Market Section 3.1 Nikki Bhupal Oct 16,2009 Block A

What is a free market? A free market is a society which allows business to make a profit -North American countries are free markets -Profit drives businesses to succeed.

Free market continued A Canadian free market allows Canadians to hold a private property and do with them as they please (This means the government can’t take away or sell people’s property) -Some use it to make products and to help make a profit -others use it to re-sell at a higher price for a profit A free market also not only allows competition but encourages it. Competition defines the structures of the market

Market Structures Four major market structures: Perfect Competition -A market characterized by a large number of small companies, none of whom have an opportunity for market control. It requires government legislation to restrict growth.->No-one has control over pricing and no-one has control over the market. Monopolistic Competition -A market consisting of a large number of companies, each having an opportunity for a degree of market control.

Market Structures Continued Oligopoly -a market with a small number of large companies, each with a substantial amount of market control. Ex: Rogers, bell, and TELUS Monopoly -a single company has market control. Ex: There is only one place to buy electricity- BC hydro) http://en.wikipedia.org/wiki/oligopoly#Canada

Monopolies Why monopolies are not great for consumers… Standard oil company, created by John D. Rockefeller STANDARD OIL: was a American oil producing, transporting, refining, and marketing company established in 1870. -It was broken up by the US supreme court in 1911 because it controlled 91% of the production and 85% of sales (mostly kerosene) which was exported around the world.

Monopolies continued The Canadian government insists upon competition, therefore the government regulates monopolies. -Ex: We will never see a West Jet& Air Canada merger The government also legislates against trade practices that limit competition unfairly. -EX: price fixing, restricted mergers, exclusive dealings.

The benefits of competition There are benefits to individual consumers and our society as a whole… Encourages the creation of new businesses -Good for society and individual consumer Enables a wide selection of goods/services to consumers—good for individual consumer—consumers have a choice (due to a variety of offerings) encourages quality of products/services—good for society and individual consumer—holds businesses accountable.

Competition and Productivity One way to compete is by charging less then the competition -must be more efficient, use fewer resources, or make better deals with suppliers (buyers are HUGE here) Another way is to develop something new (invention or innovation) -R&D departments support technicians who work on new ideas Improvements in R& D can cause turmoil in some industries Ex. Video rental stores had to change inventories to DVD’S and VHS tape

Direct Vs Indirect Competition Direct competition: products that are very similar are in direct competition for consumer dollars Ex: BIG MAC AND WHOPPER Indirect competition: Products that are NOT directly related to each other Ex: BIG MAC AND FROZEN PIZZA.